“Since the day I opened the salon, I’ve been running my business in an orderly fashion. I’m a law-abiding citizen,” says K. “I never thought I’d be working off the books. But then the coronavirus hit us and I saw how disgracefully the government was handling things. The amount in compensation the government paid hair-salon owners was an absolute joke.
“Also, the restrictions they placed on us caused us to lose our businesses, while the haredim are freely celebrating. That made me so mad.”
So what did you do?
“When the second lockdown began, and I’d used up all my savings paying all my expenses, which continued to accrue, I realized I had no choice but to bring in as much income as possible, so I began giving people haircuts in their homes. Of course, none of these people reported these transactions.”
Once the lockdown ended, and businesses were allowed to reopen, K reopened his salon, but he did not go back to reporting all of his income.
“At the moment, I’m reporting about half of my income. I need to have some income so that I can qualify for government grants,” continues K.“If the government is screwing me over, why should I feel bad about screwing the government back a little bit? Sorry for the crass language, but that’s how it feels. Even as it stands, business is slow and people are still afraid of getting their hair cut. How can I make it through the month if I need to pay taxes on everything I make? There’s no way I could get by.”
It seems that with the onset of the economic crisis, more and more business owners and people who are self-employed are choosing not to report some of their income. The Israel Tax Authority also admits that this is a growing trend. Despite the compensation, grants and financial relief offered by the state to self-employed Israelis, many businesses have not been able to survive the restrictions Israel put in place during the COVID-19 pandemic.
“You cannot imagine how many of these cases I’ve come upon recently,” says Yaron Gindi, president of the Institute of Tax Consultants in Israel. “This phenomenon has hit two specific groups. The first is self-employed Israelis who feel like the state has abandoned them. We are currently experiencing an acute crisis of confidence between the business sector and the government, perhaps the worst ever recorded in the history of the country. As a result, these individuals have decided to screw over the government because they feel like it pushed them into the corner and has forgotten about them. Unfortunately, it seems that we’ve been thrown back 20 years with everything connected to paying under the table and withholding taxes. This is a dangerous situation that is extremely harmful to the country.
“The second group is people who’ve been furloughed or fired from their jobs. According to official employment data, about one million workers lost their job and are currently receiving unemployment benefits. Some of these people are not interested in returning to their jobs since it’s not worth it to them, and they are eligible to receive unemployment benefits at least until June. Many of these people are working off the books to earn extra money, and they have no incentive to return to their former jobs.
“I’ve also heard of many people who’ve been willing to go back to their jobs, but only if their boss is willing to pay them under the table so that they continue receiving unemployment benefits. This phenomenon is becoming more and more prevalent these days, and my biggest fear is that people will become acclimated to this situation, and that it will take many years for us to eradicate it.”
“J,” a restaurant owner, explains, “After I completed my IDF service many years ago, I joined my father in the business he’d built up all by himself. He taught me how to prepare exceptional dishes and secret recipes that have been passed down in my family for generations and have fed many satisfied customers. He also taught me how to be a law-abiding citizen, how to treat people respectfully and how to be an honest person who does not take any shortcuts.”
When the pandemic hit, J was forced to close his restaurant to diners and engage only in preparing takeaway orders.
“In my mind, the whole reason why people go to restaurants is to be able to go sit somewhere nice, relax and enjoy themselves with their friends and families,” J continues. “The moment I realized our only option was to prepare food for takeaway, I no longer had the desire to invest all of my heart and soul in creating a unique restaurant, so I shuttered the business and applied for government financial assistance. After a while, we reopened and things started going back to normal, until the second lockdown was declared, and we were forced to close again.”
J found it difficult to feed his family on the piddling amount he received in the government subsidies.
“So I started a small business with a friend of mine. We began making sandwiches, which we of course sold off the books. There was no way I could afford to report this income. I’ll have to wait until things go back to normal.”
What did your father think of this venture?
“My late father was a truly righteous person who lived during a time when the government and the state were run by people with values. But nowadays, as we watch our politicians make such stupid decisions, I’m realizing that the world my father lived in is dead. We’re living in a different reality now, and there’s no way to survive without twisting the rules a bit. It’s sink or swim now. I need to put food on the table some way or the other.”
How is your new business going?
“Surprisingly well. I didn’t think we’d succeed in bringing in so much money. Of course, this is just temporary until I can get the restaurant back on its feet. But at least it’s given me a little breathing space. If I had to be dealing with invoices now and report my income, it would definitely not be a profitable business.”
“S,” who lives in central Israel, says, “I’ve been a fitness trainer for 10 years. Up until now, I’d never stolen even one shekel from the government. I’ve always been as straight as an arrow. But when the coronavirus hit, I felt like I’d been thrown under the bus, along with everyone else whose livelihood disappeared overnight. I knew that I had to stay under the radar. My clients didn’t care – they just wanted to continue receiving the same professional services from me. I’d like to point out that in the past whenever I was offered money under the table, I refused. But today? I have no choice.”
Before the COVID-19 outbreak, “M” worked as a singer who performed at weddings and other events.
“I’ve been making money from these types of performances since I finished the army. Slowly, I started to make a name for myself and had a lot of offers for performing. Before the coronavirus, I was booked for at least 15 performances a month. It’s a lot of work, and I worked really hard, but I also made a decent living.”
And then COVID-19 hit.
“Yeah, and as everyone knows, weddings and other large events came to a stop. In between lockdowns, there’s been a little work, but I realized that the only way for me to bring in any money was by offering friends and families on Facebook to perform at small private parties, for which I received very minimal payment. There’s no way I could afford to report these amounts.”
Are you afraid of getting caught?
“Unfortunately, I don’t really have a choice, since I need to pay for my groceries somehow. The government only knows how to give us restrictions, they don’t actually care about people who have run out of money to buy food. I know so many people who have literally ran out of money and are scrambling to survive. I have no qualms about the way I’m trying to feed my family. It’d be better to get caught doing this than have my family living on the street.”
According to the Institute of Tax Consultants’ Gindi, a partial solution that would counteract this phenomenon would be to offer small businesses employment incentive grants so they could bring back employees who’ve been furloughed. This would at least prevent people from receiving unemployment benefits while also working at a different job under the table.
“Businesses should be receiving these funds, not the employees,” explains Gindi. “The way it should work is the government pays the employer, and then the employer pays the workers. We need to restore people’s trust in the public and private sectors.”
The Tax Authority responded to our inquiry: “The Israel Tax Authority is currently working on the necessary balances arising from the difficulties Israel’s business sector is facing due to the coronavirus outbreak. Tremendous resources have been invested in aiding businesses and offering grants and assisting companies and individuals with great sensitivity, with the understanding that many businesses are currently experiencing cash flow difficulties. To that end, the Tax Authority is offering accelerated refunds and allowing extensions to be filed.
“Nonetheless, the Tax Authority continues to act with zero tolerance against individuals who’ve chosen to use the coronavirus as an opportunity for delinquency, and we are working diligently to uncover anyone using fictitious invoices or engaging in tax evasion. We’ve noticed a growing occurrence of this phenomenon within certain sectors, such as home renovations and cosmetic treatments. The Tax Authority collects a great deal of information about these businesses through covert activities, and we will take the necessary steps to eradicate these actions with appropriate severity and at the right time.”
Translated by Hannah Hochner.